When Gail Wilensky invited me to participate in this session, I accepted readily for three reasons.
First, I was honored—who would not be?—to speak at the annual meetings of the Institute of Medicine?
Second, it is hard for me to say " no " to Gail, whom I have known in various capacities since her first job
out of graduate school. Third, I know and respect David Cutler. He and I are billed arguing opposite
sides on the question. But I don't think that we disagree sharply on much of anything. Where we do see
things differently, the disagreements, I am confident, will be matters of nuance and emphasis.
I begin with an economic truism and a fact. The fact is that over the long term, public
expenditures cannot much exceed taxes without collapse of the nation's economy. Yes, outlays can run
ahead of revenues for a while. But deficits create debt, and interest on that debt must be paid. If a nation
borrows to pay interest, debt explodes, and the currency collapses. The fact is that government
expenditures under current law are almost certain to grow much faster than national income. The
principal reason is rapid projected growth of government spending on Medicare and Medicaid. Projected
increases in health care spending are so large that cuts in other government programs could not possibly
close the projected gap between taxes and spending.
The truism and the fact jointly mean that either the proportion of income collected in taxes must
be sharply increased, or the growth of outlays—and, more particularly, Medicare and Medicaid spending—must somehow be cut.
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